MY HEALTH CARE REFORM PLAN, PART II: In my last entry, I described my scheme for health care reform, based around a federal health insurance voucher system (not unlike the idea of local governments issuing school vouchers to parents for the education of their children). Today I want to follow up on what could happen on the supply side, under such a scheme. To cut to the chase, I believe that a lot of good things could happen on that side.

My initial assumption was that when a citizen received their annual health voucher, good for so many thousand dollars worth of coverage as determined by Congress, that citizen would use their voucher to purchase a one-year health insurance policy which meets minimum federal coverage standards and regulations. I assumed that a number of different health insurance companies would offer a number of different policies tailored to customer preferences. The market would be nationwide, so that the barriers in our present state-by-state system would be removed. This would provide everyone with a range of competitive choices, similar to what exists for most other kinds of insurance products (life, auto, home, business, etc.).

Hopefully the insurers will compete based on quality of customer service,  »  continue reading …

I decided to take up the intellectual challenge of designing a health care reform package. Yes, I finally put together an answer to the perpetual question, “what would you do?” I’ll explain in a minute. But first, let me say this: when you actually try to put a health care plan together, you soon fathom just how complicated the whole thing is. There are a lot of conflicting interests; improve one thing and you potentially cause disaster regarding something else (e.g., you can make the system fairer and more accessible to the less fortunate, but you then reduce the incentives for life-saving innovations and cost-containment efficiencies). Once you start designing an answer to the health care crisis, you soon see that there’s no way to do what President Obama says that he and the Democrats will do. Sometimes you hear people say “the health care situation is really very simple, all you have to do is . . . ” And their solutions sound good for a half-hour or so, until you think through what would could go wrong. The general answer is, a LOT could go wrong with any simple solution to the health care crisis in America.

The first principle of my own reform plan is HONESTY. I would tell America this about my plan: it would seek to control costs, maintain affordability, and guarantee access to health care for everyone while fostering personal freedom, a range of consumer choices, and incentives to continue developing new life-saving drugs and other treatments. But it will NOT guarantee that anyone below the $100,000 income limit will get medical coverage at least as good as they have today for not a penny more. It will not insure that everyone can keep their present insurance plan and doctor if satisfied (which around 80% of people are). For some people, perhaps many people, it might mean additional financial burdens in terms of medical care payments, insurance fees, or taxes.

I can reasonably claim that in the long term, more people in America  »  continue reading …

I’ve been critical of President Obama and his approach to health care reform, but when asked “well, what would you do?”, I’m stopped in my tracks. The more I learn about the whole situation, the more befuddled I’ve become about it. I have voiced my dissatisfactions on this blog with the current American health care system; about how terrible it is to deal with insurance companies, about how the government (especially Medicare) is too inflexible, and about how doctors are being forced to give you too much care in some places (e.g. tests and referrals to specialists) and too little in other areas (e.g., getting to know who you are and how you really live; and with that knowledge, finding ways for you to improve your health and avoid disease). And of course the rising costs of health care continue to diminish our nation’s economic recovery prospects, and is taking a lot of families down in the process (with uninsured and insured but uncovered health care bills). But as to coming up with a solution — I’ve been at a loss. TILT.

However, I had a revelation about it today, a road-to-Damascus experience. I figured that I’d share it with the world, for whatever it’s worth (probably not much). It struck me that we really don’t have any competition in the health insurance market – even though that’s the one place in the system where a competitive market could do the most good. As with most people who have health insurance (other than Medicare or Medicaid), my insurance is provided by my employer. I don’t pick out my plan; I take what the company decides to provide me with. (Yes, we can choose between 2 different providers; but we can only change in limited circumstances, and the plans are pretty similar anyway). My company decides which insurance company will provide my insurance, and what the features of that plan will be. I hope that the company is thinking about the importance of keeping me and my fellow workers healthy so that we can continue to work; but for the most part, my employer is concerned with controlling costs when it selects an insurer and a plan. It doesn’t really think about my particular needs.

Imagine if we all got our autos that way.  »  continue reading …

Many conservative commentators are upset with President Obama for his expansive economic policies, which have or soon will extend federal control into a wide variety of businesses in the auto, finance and health care sectors. About 2 weeks ago there was an article in the Wall Street Journal by John Steele Gordon outlining why government can’t and shouldn’t run industry. (Judge Richard Posner has expressed similar reservations). Here’s the summarizing paragraph from Gordon’s article:

The Obama administration is bent on becoming a major player in – if not taking over entirely — America’s health-care, automobile and banking industries. Before that happens, it might be a good idea to look at the government’s track record in running economic enterprises. It is terrible.

Mr. Gordon’s first “case in point” regards a factory built by the federal government during WW1, to produce steel for battle ships. Quote from Mr. Gordon:

In 1913, for instance, thinking it was being overcharged by the steel companies for armor plate for warships, the federal government decided to build its own plant. It estimated that a plant with a 10,000-ton annual capacity could produce armor plate for only 70% of what the steel companies charged.

When the plant was finally finished, however — three years after World War I had ended — it was millions over budget and able to produce armor plate only at twice what the steel companies charged. It produced one batch and then shut down, never to reopen . . .

I was having a slow day at work, so I decided to get on Google and find out what Mr. Gordon was talking about. It turns out that he was referring to the South Charleston, WV Naval Ordinance Plant. The plant was authorized by Congress in 1916 and the north unit, meant for shell production, was completed and in service in 1918. The armor production plant, which was a fully integrated steel mill, was operable in 1921, after the war was over. Mr. Gordon implies that private enterprise could have built the mill faster. I’m no expert, but five years to get a fully integrated steel mill planned and built, i.e. a factory that takes in coal and iron ore at one end and outputs cut-and-finished steel products at the other, isn’t bad. I rather doubt if US Steel or Bethlehem could have done better, then or now.

The federal government decided to mothball both plants in the 1920s, and had considered selling them in the 30s. However, by 1937 it was becoming apparent that military production capacity would be needed again as Germany and Japan started their campaigns of expansion and genocide. By 1940, the government contracted with two private industrial corporations to re-open the Charleston plants, the north plant for gun and rocket production, and the south plant for armor. By 1940, Carnegie-Illinois Steel had the south plant mill in operation. After WW2 the plants were mothballed again, and the properties were finally sold in 1961.

Oh, I found this out from an article about the factory on a West Virginia historical society site, and another article about President F.D. Roosevelt’s visit to the factory in 1940.

In the end, the armor plant and its adjacent ordinance facility turned out NOT to have been a boondoggle; its available capacity came in handy as Nazi and Japanese expansionism threatened our nation. The plant was operated as a public-private partnership during WW2. This was not the first or last time that would happen.

Mr. Gordon seems to cast government-versus-private operation of industry as an all-or-nothing question. In fact, the truth during the 20th Century was much more complex. One example that comes to mind involves the aluminum industry. During WW2, the federal government needed a lot of aluminum for all of the bomber and fighter planes being used over Europe and the Pacific, so the feds built a couple of big aluminum processing factories. I recall seeing the one in Cressona, PA, out in coal mining country. After WW2 was over, these plants were sold to Kaiser, Reynolds and Alcoa (which ran and eventually bought the Cressona plant), and thus helped to kick-start the post-war aluminum industry for consumer products (lawn chairs, cooking foil, house siding, window frames, etc.).

The feds also semi-nationalized the railroads during WW1. Speaking of railroads, the government owned Conrail from 1976 thru about 1985, as to avoid collapse of the bankrupt eastern RR’s during the oil shock recession of the mid-1970s. After the rail lines to NY, Boston and Philadelphia were rebuilt and industry started using them again, they were sold to private interests, and are now vital components of the two major private rail companies in the eastern USA (i.e., CSX and Norfolk Southern).

Shall I get away from heavy metal, into the modern digital economy? Well, recall that the Internet grew from ARPANET, a 1980s government effort to promote the sharing of defense-related research. The initial infrastructure for the net was put down by the government; private industry took it from there and made it consumer-friendly.

I wrote to my friend Edward Furey, a history grad from Cornell (one of the few Ivy Leaguers I know), whether he had more examples of government involvement in industry during wartime. Being a WW2 specialist, it was not surprising that Ed had a big list. Here’s what came to Mr. Furey’s mind:

Many of the warships that won WWII were built in the Brooklyn Navy Yard and other facilities like the Philadelphia Navy Yard. The Brooklyn Yard, by the way, had been around for a while. They built the Monitor, going from Ericsson’s design to fighting the Merrimac in around 100 days, so the yard was pretty efficient. Rifles and ammo were produced at the Springfield Arsenal. The atomic bomb was designed, developed and tested at government-run facilities, and depended to some extent on the excess electricity made possible by the TVA and New Deal dams on the Columbia River, near Hanford. So the government not only built the weapons, but also supplied the electric power to the plants.

Also, in some cases comparative advantage doesn’t pay off, as when the U.S. government noticed that the best military optics were being made in Germany and Japan. So the Bureau of Standards got into the optics business, making optics for things like periscopes and instruments. For some time it was the only game in town for sophisticated optics, there being no commercial interest in the business.

Finally, the government provided the capital for outfits like Grumman, who were producing 600 Hellcats a month in 1944 in plants almost entirely owned by the Navy.

So, the government can build and sometimes run the facilities needed to win a war. But can they make products and services that can compete in the globalized consumer market of today? Admittedly, that’s a tougher question. Experience from the socialist economies of Europe during the 20th Century suggest that it ain’t gonna work. Here in the USA, we don’t buy cars these days from Renault, Fiat or British Leyland – all nationalized auto companies. We buy them from Honda and Toyota, which are not. BUT, Honda and Toyota aren’t exactly free from government involvement either. The Japanese government was certainly involved in supporting the growth of these firms, especially in the area of finance.

So, it’s not exactly novel or inappropriate for the federal government to become heavily involved in certain critical American industries. Government can take a broader and longer-term view
than the markets can. But the politicians and bureaucrats also have to remember their limits. Government must cooperate with market-driven participants in order to avoid the worst of what John Steele Gordon rightfully identifies regarding the sins of public administration (inefficiency, poor quality, no sense of what customers really want). They have to remember to get out as quickly as possible after they get involved in an industry. Hopefully, President Obama and his team will look to what actually took place in South Charleston, in Cressona, along the eastern railways, and along the information highway, as an interesting set of lessons regarding “industrial policy”.

We obviously need more “industrial history”, and more accurate history, in the current debate about the Obama Administration’s long-term economic plans.